An investigation into the extent of application of the working capital management techniques by hire purchase companies in Nairobi

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Abstract

The theory of working capital management contends that if working capital is managed
according to prescriptive theory then it would be expected that businesses would invest
in working capital, finance working capital, monitor factors that influence working
capital, manage cash, accounts receivable, inventory, accounts payable, the cash
conversion cycle(aggregate approach) and measure the performance by ratio analysis to
ensure that long term assets(fixed assets) are utilized effectively and efficiently. This
study analyzed the extent of application of Working Capital management techniques by
19 Hire Purchase (HP) companies in Nairobi, Kenya. The hire purchase companies are
selected purposively. The study sought to document the Working Capital Management
techniques used in financial decisions, the reason for their use and factors inhibiting
effective use of these techniques. It also examined the liquidity and the Cash
Conversion Cycle of the HP companies. The methodology involved descriptive research
methods. Primary data was collected by a questionnaire containing open and closed
questions and analysed using descriptive statistics. Secondary data was also collected by
use of a financial data schedule. This schedule collected the financial data needed to
compute financial ratios relevant to working capital management. Computation and
ratio analysis was performed by use of Microsoft Excel and financial ratios formulae.
Both primary and secondary data were processed by SPSS statistics 17.0. The main
observations of this study are beneficial to the corporate decision makers, investors,
financial institutions, govenunent and other stakeholders in Kenya as well as other
countries of the world